Extended daily reporting requirements for European banks present new challenges

Starting with MMSR in April 2016, followed by MIFiD II/MiFIR and SFTR.
Given the ongoing structural changes in the financial markets, the European Central Bank (ECB) has adopted new regulations and guidelines imposing tighter reporting requirements for European banks.

Money Market Statistical Reporting Regulation (MMSR)

To meet their requirements, the ECB will collect statistical data on money market transactions involving the euro starting in April 2016. On 26.11.2014, the European Central Bank (ECB) adopted regulation (EU) No. 1333/2014 concerning statistics on the money markets (ECB/2014/48). For Germany, the Deutsche Bundesbank requires that any institute with a balance sheet of more than 1 billion euro and an existing PM account in TARGET-2 comply to the new reporting requirements.
These transaction-based reports are intended to provide the ECB with a comprehensive view of the details of the money markets in the Eurozone in order to comprehend the effectiveness of the monetary stimulus and to fulfil the ECB’s duty to support stability in the financial markets. The information should further strengthen the now standardized Single Supervisory Mechanism (SSM) in accordance with regulation (EU) No. 1024/2013 in analytical and statistical terms.
Commencing on April 1, 2016, a 3-month transitional period will begin, in which test reports based on real data will be submitted. It is expected that the data quality will continually increase during the transitional period. Starting on July 1, 2016, the productive report shall be submitted to the Bundesbank by 6:30 a.m. CET of the trading day following the transaction day (t+1) or to the ECB by 7:00 a.m. CET.

MiFID II / MiFIR

Market participants will have to apply the new MiFID rules (Directive 2014/65/EU: MiFID II) as well as the supplementing Markets in Financial Instruments Regulation (Regulation (EU) No. 600/2014: MiFIR), starting in January 2017. MiFID II / MiFIR represents a significant expansion of the existing reporting requirements and applies to all trading centers and all financial instruments.
From this point on, investment services companies must report data to BaFIN, either via the trading platform, the Approved Reporting Mechanism (ARM) or directly. The reporting encompasses data for all products in a regulated market (RM), a multilateral trading facility (MTF) or an organized trading facility (OTF) that are approved for trading or for which an authorization for trading (link to the EMIR clearing obligation) has been requested. In addition, derivatives on these instruments and on baskets and indices based on these instruments are to be reported.

Regulation on Securities Financing Transactions (SFTR)

Further daily reporting requirements are estimated. In June 2015, the European Commission, the European Parliament and the EU Council agreed on a new regulation for the reporting and transparency of securities financing transactions (Regulation on Securities Financing Transactions, short SFTR or SFT Regulation)(Proposal for a Regulation of the European Parliament and of the Council COM (2014) 0040 & 2014/0017 (COD)). The purpose of reporting according to the SFTR is to increase the transparency of securities financing transactions. Commencing from 2018, institutions that are required to report - financial and non-financial counterparties that act as counterparties in an SFT contract - will need to report all transactions with respect to products such as repurchase agreements, securities /commodities lending and collateral swaps.

Challenges for reporting institutions

The main challenges for reporting institutes are presented by the identification of transactions that need to be reported according to the respective reporting obligation. Furthermore, over reporting is not allowed so a correct identification of the relevant transactions, the identification of reportable "events", the management of the overlaps and differences as well as the decision on the ideal technical implementation. Institutions will have to decide whether the ongoing development of existing solutions or in-house developments is feasible, or whether they will implement a standard software solution that supports all of the required reports.

Given this background, BearingPoint has expanded its product portfolio, offering a standard software solution for transaction-by-transaction reporting as an equivalent for the regulatory reporting software ABACUS/DaVinci. The new product ABACUS/Transactions helps meeting the increased demand for even more granular intra-day transaction data calculation. The ABACUS/Transactions modules TR and MMSR will cover the reporting obligations of derivative contracts to an authorized trade repository (EMIR reporting) and the reporting of euro dominated money market transactions to the Bundesbank / European Central Bank (ECB) (MMSR). The relevant transactions for these reports are being delivered to ABACUS/Transactions by the banks´ front- and back-office systems via a predefined interface. Additional modules for MiFIR and SFTR, as new European reporting components, as well as the Swiss EMIR reporting to the trade repository SIX (according to FinfraG) are being planned.